Bond Investing For Canadians For Dummies
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Bond Investing For Canadians For Dummies
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Obviously, you want to look at any prospective bond fund's performance vis a vis its peers. If you are examining index funds, the driving force behind returns will be the fund's operating expenses. Intermediate-term Treasury bond index fund X will generally do better than intermediate-term Treasury bond index fund Y if less of the profits are eaten up by operating expenses.

With actively managed funds . . . guess what? Operating expenses are also a driving force. One study conducted by Morningstar, reported in The Wall Street Journal, looked at high quality, taxable bond funds available to all investors with minimums of less than $10,000. More than half of those funds charge investors 1 percent or more. Not surprisingly, almost three-quarters of those pricier funds showed performance that was in the bottom half of the category for the previous year.

Russell's rule: Don't pay more than 1 percent a year for any bond fund unless you have a great reason. And don't invest in any actively managed bond fund that hasn't outperformed its peers — and any proper and appropriate benchmarks — for at least several years. ("Proper and appropriate benchmarks," refers to bond indexes that most closely match the composition of the bond fund in question. A high-yield bond fund, given that you can expect more volatility, should produce higher yields than, say, a Treasury index. Any comparison of a high-yield fund's return to a Treasury index is practically moot.)

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About the book author:

Russell Wild, MBA, is the author or coauthor of nearly two dozen books, including Index Investing For Dummies and Bond Investing For Dummies. He has a master’s degree in business administration and a graduate certificate in personal financial planning. Wild is also an associate of NAPFA.